The indicator came in at 48.9 for the month, compared with 48.7 in February. A reading below 50 suggests a contraction.
It was the first time the index has indicated a deterioration in business conditions in back-to-back months since the survey began in late 2010.
The report is based on data from monthly replies to questionnaires sent to purchasing executives in over 400 industrial companies.
It suggested that output, new business and employment levels all fell at slower rates than in the previous month.
However, manufacturers signalled a reduction in work-in-hand and inventory levels were reduced again amid concerns about the outlook for client demand.
"With a second consecutive reading below 50, the RBC PMI is signalling that Canada's manufacturing sector continues to face headwinds," RBC chief economist Craig Wright said in a statement.
"We remain confident that as the U.S. economy continues to strengthen and the Canadian dollar becomes more competitive, there will be an uptick in exports, a good sign for manufacturers - we need some time to see this materialize."